surplus market insurers, and the reinsurance industry as a whole are tightening up risk reduction requirements and being extra cautious about what they’ll cover.
• Under-Collected Premiums: Insurance companies in California haven’t
raised rates as much as required to
remain profitable and to cover losses, leaving their reserves underfunded. The reinsurance market that insures the state’s admitted carriers and insurance companies nationwide suffered losses of more than $15 Billion in 2023, complicating insurance coverage. So, now insurers are less willing to take on higher risks—such as properties with unsafe electrical systems.
• Rising Costs: Inflation and surging construction costs (up 37.7% since 2020!) mean repairs are more expensive than ever. Insurers are understandably wary of insuring older properties that might need costly updates.
What Board Members Can Do
Don’t wait for a Loss Control Survey to tell you these panels are a problem. Be proactive! Have a state-licensed electrician check out those panels now.
Include homeowner and
association-owned panels to see if any of the high-risk brands are hiding in your community. If you find them, address the issue head-on before your insurance carrier does.
Some Ideas to Consider
• Promptly Respond to Loss Control Recommendations: If you do get a Loss Control Survey, don’t drag your feet. Respond quickly and show the insurance company that you’re on top of things. This could buy you some extra time if you need it.
• Enforcing Panel Replacement: If the panel is an owner maintenance responsibility, consider enforcing replacements. Consult with association legal counsel on methods that are compliant with the law and the CC&Rs. The goal is to make certain the entire community complies with insurance requirements and protects the rest of the community, particularly if there is surrounding building infrastructure.
• Determine Association Liability and Exposure if
a Homeowner with Responsibility Fails to Replace a Defective Panel and a Loss of Association Property Occurs. Consult with association legal counsel regarding the exposure to repair or rebuild if a fire caused by a homeowner results in damage to association property, common area, or other surrounding property, particularly in older communities without fire suppression systems, where significant losses could occur. HO-6 policies may provide some financial
relief, as they often
include loss assessment coverage for common area damages caused by covered perils, but this coverage is typically capped and dependent on the association’s master policy covering the same peril. Where applicable, boards should encourage unit owners to carry robust HO-6 policies and work with legal counsel and their insurance broker to ensure sufficient coverage and proactive risk mitigation.
• Loss from a Homeowner-Caused Fire that Results in Damage to Association Insured Property. For example, older condominium communities with defective panels usually do not have fire suppression sprinkler systems and a significant loss could occur. Does an owner have HO-6 condominium insurance that covers such a common area loss? What does association legal counsel recommend?
• HOA-Funded Replacement with Homeowner Reimbursement: If some homeowners struggle to cover an electrical panel’s replacement cost, is there a potential for the association to replace the panels and assess the unit owner for the cost? Boards must consult with association legal counsel to determine if this is a feasible option. Boards will also need to review the right-of-entry options, acknowledging that a typical panel replacement requires multiple inspections due to the permitting process.
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